Factoring

[davey707]

Anyone here reccomend a factoring company?
Any helpfull tips on what to expect or lookout for.
Any tales of how they have transformed your business for the better - or otherwise would be good too.

Ta

[Marcos maniac]

Used HSBC many years ago (when they were Midland) IIRC they were called Griffin Factoring Services.

was quite easy to set up, they chased payment - saved you peeing off clients and would pursue any debts.

from what I remember they do a credit check on all of your clients and set a credit limit. They charge you a % of all bills but you can draw IIRC 75% of the amount virtually straight away.

basically you have an account (like a bank account) with them and as bills are paid to them they credit your account with the money (if you haven't already drawn it) They also (or used to) pay interest if your account was in credit.

I used them several years ago when my company was going through a major growth spurt and I needed to get money in quickly to pay the wages etc, they kept me afloat when some of my clients would have forced me under.

[davidy]

I used factoring for a number of years in a fast growing distribution business.

We ended up using a small factorers (ISIS Factors in Goring on Thames) as we found the major banks were too inflexible (and their charges were higher). We wanted to factor some service charges rather than just shrink-wrapped goods as we didn't want customers to have to receive two invoices, one factored and one not.

If you want control of your client accounts consider Invoice Discounting.

I would recommend factoring as long as

1) your business is forecast for continual growth (dips in growth cause cashflow issues)

2) you plan from day one your factoring exit route

3) AND IF you've 'borrowed' more than x% of the available funds from your factorer, it falgs an alarm and you ask yourself why you are doing this.

It is also easy to statrt overspending on business exepenses (salaries, etc) so my golden rule was to keep a close eye on the balance sheet and ensure that it never went negative!!!!! (Easy check Bank Account + Money from Factoreres < Debtors)

Hope that helps

davidy

>> Edited by davidy on Friday 2nd January 12:16

[davidy]

Having just looked at your profile, and making the assumption you want to factor the business linked on there, I would point out that most (if not all) the major factors only factor shrink wrapped goods and not services.

If the services constitute a more significant part of your business than product sold, then I'm not sure that anyone will factor you. The reasoning behind this is that service (labour) invoices are subject to more disputes than product invoices.

You may have to look at other ways of injecting capital into the business

davidy

[steviebee]

The benefit of factoring depends on your business and the seriousness of the effect that late payments have on cashflow.

Most factoring companies will only cover the "good" accounts so one has to ask what the true befit really is in this respect.

A lot of businesses make the mistake of using factoring AND an overdraft. This should be avoided as they both do essentially the same thing and by using both, you simply end up paying twice.

[simpo two]

I heard that Dun and Bradstreet offer a credit-checking service as part of their package, and that if one of their 'okayed' customers defaulted, they would pay compensation. I expect their service is expensive though!

[davey707]

Thanks for the words all, got a couple of companies coming to see me tomorrow. On the whole it sounds like a good idea. We'll see!

[Davel]

Most banks offer such a service but a word of warning, it can have an adverse affect on your relationship with customers.

Factoring companies often don't care about your ongoing customer relationship - they just want the money.

They may not be interested if any of the debts are being queried between you and your clients.

[gazm]

I've recently been involving in a management buyout of a service led company. Weve opted for confidential invoice discounting with Barclays. Basically they advance us 80% on raised invoices but it is still up to us to chase payment (which is better for customer relations) once payment is made we recieve the other 20%. There is a charge for the service which is fairly minimal but clients do not know you have any such arrangment

[phil dicky]

I'm using factoring at the moment but with the support of HSBC (moving banks to them) I'm giving notice on the agreement.
Two reasons really a larger overdraft would allow me access to 100% of funds owed as opposed to 80% through factoring.
The cost for me is far too high a larger overdraft would be a quarter of the price

[Aprisa]

I have never found a problem with factoring or Invoice discount companies being willing to deal with a service company indeed I know of a lot of other courier companies who factor.

I would however consider other options before going down this route, as said before it can severely affect your cashflow if you have a slump in growth and no-matter what your good intentions you may have already spent the money that came in before!

As a matter of policy I will not deal withe companies who I know use a factoring company as in my opinion it shows financial instability, at present you can finance borrowing more cheaply elswhere without looking desperate for cash.

Had too many customers and suppliers fail who were factoring to want to take the risk.

Just my 2p
Nick

[davey707]

Thanks for the advice everyone.
Overdrafts: We already have an O'draft but it's secured against my home and is just not sufficient to enable the business to grow. The banks will I would imagine allow us to increase this facility but I'm not prepared to risk all on a market - I.T - that's already on it's knees.
Factoring will enable me to clear the O'draft and regain full possesion of my house sooner rather than later and will at a price enable us to fianace the growth we require.
I know that all finance methods have their risks, but there will be no personal risks - re my home with factoring.
If customers wish to take the hump with our factoring of debts, then they should pay up on time.

Ta